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Flagship Initiative Tracks Nature Opportunities

Stewardship, emerging markets and supply chains will be key areas of focus within Greening Finance for Nature. 

To better incorporate nature into their financial decision-making, investors need to broaden their understanding of the scope of investment opportunities alongside risks. 

This is according to Dr Nicola Ranger, Head of the Resilience and Development Programme at the University of Oxford’s Environmental Change Institute (ECI). 

Ranger is leading the work on the new Greening Finance for Nature initiative, a £7 million (US$8.8 million) programme funded by the Natural Environment Research Council and Innovate UK, part of UK Research and Innovation. 

The initiative describes its vision as build national capability bridging scientific, finance, policy and third-sector communities, harnessing science to enable the greening of finance for nature and mobilisation of capital for nature recovery.  

This is one of three flagship schemes that were allocated government funding from the UK’s Natural Environment Research Council, as part of the Integrating Finance and Biodiversity Programme (IFB) launched in April 2023. The IFB also includes the Financing Green Sector Transitions and the Financing Biodiversity initiatives. 

While phase one of the latest scheme focused on understanding nature-related risks and how they can inform risk assessments and strategic asset allocations, phase two will involve a more comprehensive look at investment opportunities and how nature feeds into financial decision-making, such as stewardship. 

“If we are going to meet the nature goals outlined by the Global Biodiversity Framework (GBF), we can’t just finance different conservation projects,” said Ranger. “Investors have to look at transitioning whole sectors, investing in industries so they are more sustainable.”

A whole range of investment opportunities exist within that, she explained. As such, phase two of the initiative will be assessing potential nature-related investments across emerging markets and developing economies (EMDEs).  

“A lot of the natural world we want to preserve is based in these areas, which brings many other issues for investors and financial institutions to consider,” Ranger added. 

Team work  

The initiative, the ECI has been working alongside the European Commission to examine what governments could do to unlock finance flows into protecting and restoring nature and supporting the climate transition in EMDEs. A report summarising their findings is expected next month. 

On stewardship, the ECI worked with UK NGO ShareAction to consider how nature-related themes could be brought into investor engagement efforts going forward. 

“We will also consider how nature is brought into ESG metrics and issues around representing nature in taxonomies,” said Ranger. 

The UN Environment Programme’s (UNEP) 2023 ‘State of Finance for Nature’ report suggested that investments in nature-based solutions (NbS) to date have been underwhelming. Worse even: almost US$7 trillion are invested globally each year in activities that have a negative impact on nature – the equivalent to 7% of the global GDP. In comparison, investments in NbS in 2022 amounted to US$200 billion, with only US$35 billion coming from private investors.  

To meet the goals of the Paris Agreement and the GBF, UNEP said public and private finance flows to NbS should reach US$542 billion a year by 2030 and US$737 billion by 2050. 

In related news, the UK’s national standards body British Standards Institution launched a consultation to inform the establishment of UK nature market standards, responding to growing demand for nature-positive investments. 

Risks and impacts 

In conversations with financial institutions, Ranger said investors typically cited the difficulty to understand the scope of nature-related risks as a key impediment to further investments in the sector.

“There are many more complexities with nature compared to climate,” she explained. “The risks are localised, meaning that investors need far more information, and that data must be more granular.” 

Understanding the variety and scale of nature-related risks, and the extent to which they impact investee companies and the services they depend on, is another common challenge.  

“Trying to evaluate the impact of a complex supply chain on biodiversity is very difficult – particularly when investors don’t have access to the full range of data,” Ranger added. 

The complexities often associated with biodiversity and nature data have also meant that asset managers are reluctant to set targets. Research by ShareAction, which ranked 77 asset managers, noted that biodiversity was still a “blind spot” in terms of performance last year. 

Against this background, the IFB has been collating nature data from a variety of platforms alongside input-output modelling to understand nature-related supply chain dependencies across various sectors and countries.  

“With the new programme, we will use a lot of AI to conduct analysis of company disclosures and scrape data from the internet around the world to identify key supply chains, what their nature-related dependencies are, and how they are assessing risk,” said Ranger. “Investors often tell us they do not have the same robustness of data as for climate. Part of our work has been to identify ‘good-enough’ data that can be used to inform decisions, but if we try to get the perfect data, we will be here for years – investors just need to get started.” 

The ECI has previously contributed to a project led by the UK’s Green Finance Institute, which analysed UK-based financial risks posed by nature degradation and the loss of ecosystem services. 

In December last year, the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) published recommendations for developing scenarios assessing nature-related economic and financial risks. The ECI supported this work by evaluating climate-nature shocks scenarios and gathering evidence on the macro-criticality of nature for the global financial system across water, pollution and pollination. 

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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